1. Economic Definition of the Four Factors of Production
by Osmond Vitez, Demand Media
Economic resources are the goods or services available to individuals and businesses used to produce valuable
consumer products.The classic economic resources include land, labor and capital. Entrepreneurship is also
considered an economic resource because individuals are responsible for creating businesses and moving economic
resources in the business environment. These economic resources are also called the factors of production. The
factors of production describe the function that each resource performs in the business environment.
Land
Land is the economic resource encompassing natural resources found within a nation’s economy. This
resource includes timber, land, fisheries, farms and othersimilar natural resources.Land is usually a limited
resource for many economies. Although some natural resources,such as timber, food and animals, are renewable,
the physicalland is usually a fixed resource. Nations must carefully use their land resource by creating a mix of
natural and industrial uses.Using land for industrial purposes allows nations to improve the production processes for
turning natural resources into consumer goods.
Labor
Labor represents the human capital available to transform raw or national resources into consumer goods.Human
capital includes all able-bodied individuals capable of working in the nation’s economy and providing
various services to otherindividuals or businesses.This factor of production is a flexible resource as workers can be
allocated to different areas of the economy for producing consumer goods or services.Human capital can also be
improved through training or educating workers to complete technical functions or business tasks when working
with other economic resources.
Related Reading: Factors That Affect Economic Development
Capital
Capital has two economic definitions as a factor of production. Capital can represent the monetary resources
companies use to purchase natural resources,land and other capital goods.Monetary resources flow through a
nation’s economy as individuals buy and sell resources to individuals and businesses.
Capital also represents the major physical assets individuals and companies use when producing goods orservices.
These assets include buildings, production facilities, equipment, vehicles and other similar items. Individuals may
create their own capital production resources,purchase them from another individual or business orlease them for a
specific amount of time from individuals or other businesses.
Entrepreneurship
Entrepreneurship is considered a factor of production because economic resources can exist in an economy and not
be transformed into consumer goods.Entrepreneurs usually have an idea for creating a valuable good or service and
assume the risk involved with transforming economic resources into consumer products.Entrepreneurship is also
considered a factor of production since someone must complete the managerial functions of gathering, allocating
and distributing economic resources or consumer products to individuals and other businesses in the economy.